Prior to Jan 2020, all palm oil and other vegetable oils were under the Free List category, i.e. imports did not require any license or permits. All this changed on 8th Jan 2020 when RBD Palm oil products, including RBD Olein (RBDPOP) were removed from the free list. This was a direct consequence of the flooding of the Indian market by Malaysian RBDPOP in Jan-Sept 2019 period, following the 5% preferential import duty under the MICECA. Although Malaysia benefited tremendously by this preferential duty, the Indian processing industry suffered. At the same time, due to duty-free status accorded to RBDPOP imports from Nepal/Bangladesh under the South Asian FTA (SAFTA), big quantities filtered into India from these countries, further eroding the competitiveness of the domestic industry.
To counter these hardships, trade associations and individual industry players made strong appeals to the GOI, which culminated in RBDPOP being removed from the free list.
However, several importers managed to obtain import licenses for RBDPOP from SAFTA countries and from the Far East. It was rumoured that such licenses accounted for about 1.1 MMT of RBDPOP.
In a recent interaction between the Commerce Ministry and The SEA of India, the issuance of such licenses was brought up, culminating in the suspension of 39 licenses for approx. 450,000 MT of RBDPOP. 150,000MT was for import from Indonesia and the rest from SAFTA countries.
The present COVID related issues had made the situation worse for the industry, with capacity utilisation falling further. This gave the GOI ample reason to set things right for the industry.
The factors that may have been taken into consideration in reaching this decision of suspending the import licences could have included:
- Indian dependence on imported edible oil has been a bane for policy makers for long.
- Importing RBDPOP, rather than CPO, due its price competitiveness, was like rubbing salt into the wounds of the domestic processors.
- Issuance of import licenses soon after RBDPOP was removed from the Free List negated the entire purpose for which this was done in the first place and raised several eyebrows.
- Indian refiners were against imports of RBDPOP from SAFTA countries as they could not compete on prices due to the significant duty advantage.
- With the Covid Pandemic Lockdown, approx. 40% demand has been destroyed. Mainly in the Horeca sector, which was a major palm consumer, where demand is non-existent now.
- Imports from SAFTA may not have been in strict conformity with the Rules of Origin (RoO). It is a known fact that none of these SAFTA countries are producers of palm oil.
All above made for a strong case to restrict RBDPOP imports and also cancel licenses that were issued.
Impact on Malaysian Palm oil
This action is not expected to have any significant direct impact on Malaysian RBD imports as no licenses had been issued for imports of RBDPOP from Malaysia anyway. However, there could be an indirect impact in terms of supply to SAFTA countries. If Nepal/Bangladesh had been importing palm oil from Malaysia for re-export to India under SAFTA, such imports could definitely be affected. If the SAFTA countries can meet the RoO requirements, then there should not be any issue.
In the longer term though, imports of RBDPOP from any origin will definitely be affected. Greater transparency in issuance of import licenses and enforcement of the RoO will be the order of the day.
Prepared by Bhavna Shah
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